Bankruptcy, Not Forgiveness, for Student Loans

By Jenna Ashley Robinson. Student loan debt is soaring. Since 1999, average student loan debt has increased by more than 500 percent, and in 2010, it exceeded outstanding credit card debt for the first time in history. Total outstanding student loan debt, by some counts, exceeded $1 trillion this year.
While many approaches have been taken to the problem (trying to cut university costs, for example), there seem to be just two proposals for lessening the burden on the students themselves. These are to allow the loans to be discharged in bankruptcy or to forgive the loans altogether. Both have been the subject of Congressional bills.
Only one of these has the proper long-term incentive effects, and even it should be hedged with some restrictions: restoring limited bankruptcy protection. That is, students should be allowed to get out of their student loan burden as part of bankruptcy proceedings, just as they are able to get out of car loans now. However, this option should be restricted to private loans and should be allowed only after a set amount of time, such as 5 or 7 years, as it was prior to 2005. Read more...